The Weekly Briefing from Capital Economics

Exploring the disconnect in the bond market as yields rise despite decreasing inflation; discussion on the spillover effects on emerging economies like China; insights into US-China fracturing, China's economic path, and fiscal policy outlook; analyzing the tightening fiscal policy and its impact on major economies and growth.

While China’s latest price reports have markets worrying about deflation, Group Chief Economist Neil Shearing thinks the real issue is what’s happening in core inflation against a backdrop of a struggling economy. He also reviews the “immaculate” July CPI report from the US and what means for the Fed and previews the UK CPI report for July due this coming Wednesday. Plus, Caroline Bain, our Chief Commodities Economist, talks about a raft of supply pinches facing commodities markets, from the collapse of the Black Sea Grain Initiative to Indian food protectionism to OPEC+ production cuts. Click here to explore the analysis referenced in this episode.

Economies aren’t doing what Economics 101 says they should be doing, with disinflationary evidence piling up, even as labour markets remain in relatively good shape. Group Chief Economist Neil Shearing talks to David Wilder about the sell-off in the bond market, potential paths to a soft landing, and the key messages from the July non-farm payrolls report. He also explains what an announcement from AMD says about artificial intelligence in a world of economic fracturing.Plus, Kimberley Sperrfechter and William Jackson discuss the risks around the upcoming presidential primary in Argentina.Plus, Julian Evans-Pritchard introduces our worrying new estimate for China’s economic trend growth rate and explains what that says about the underwhelming post-COVID recovery.  Click here to explore the analysis and events referenced in this podcast.

It was one of those turning points in the global economy which deserved more attention: Chinese passenger car exports exceeded Japan’s this past May, powered by the country’s rapidly-expanding electric vehicle sector. It’s a marker of China’s increasing dominance in this emerging industry, and another sign of Japan’s struggles to make more headway, despite its early forays into alternative fuel vehicles. But secure is China’s EV dominance, how big a threat are its EVs to the likes of Toyota, and will a steady flow of EV exports trigger a regulatory backlash? Julian Evans-Pritchard, our China Economics head, and Marcel Thieliant, who leads our Japan coverage, discuss the Chinese EV challenge and what it means for Japan’s auto industry in this special episode of The Weekly Briefing from Capital Economics. During their conversation, Julian and Marcel cut through the hype to address the key issues around the rise of China’s EV industry, including: ·        How Beijing nurtured a globally-dominant EV industry;·        The growing risk of Western protectionism against Chinese EVs;·        How Japan’s car makers lost their lead in alternative fuel vehicles.Click here to explore the analysis referenced in this episode.

The euro-zone may be mired in recession, but that won’t stop the ECB from raising rates again this coming week in order to get inflation – a “greedy beast”, according to Bundesbank President Joachim Nagel – under control. Deputy Chief Eurozone Economist Jack Allen-Reynolds tells David Wilder why another 25 basis point hikes is a done deal for this Thursday, but also why the ECB could take rates up to 4% from 3.5% now and keep them there – and what that means for an already-faltering European economy. Plus, Chief Commodities Economist Caroline Bain and Climate Economics head David Oxley discuss some of the macro, market and policy risks around the return of El Niño.And, in an exclusive clip from our UK ‘Drop-In’ about the June CPI report, Paul Dales, Ruth Gregory, Jonas Goltermann and Ashley Webb tell clients why we’ve raised our Bank Rate forecast, what recession will mean for the inflation outlook and what lies ahead for the Gilt market.Click here to explore the analysis and events referenced in this episode.

Markets cheered the US June inflation report, with equities rising and yields falling on solid evidence that the forces that drove core inflation to a four-decade high are in retreat. But is the crisis really over? How will the Fed respond in July and subsequent meetings? And what does the US experience say about the UK and European outlooks?In this week’s episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing talks to David Wilder about this latest shift in the US inflation narrative and the implications for policy. Neil also previews the coming week’s UK inflation report and discusses the risks to the economic outlook posed by El Niño.Plus, following Wagner Group leader Yezgeny Prigozhin’s dramatic failed rebellion last month, Senior Emerging Markets Economist Liam Peach discusses his major new report about Russia’s precarious economy. Liam explains the tricky task that the Putin regime now faces in maintaining macro stability at the same time as prosecuting the war on Ukraine, including the economic pressures that could force the government to seek a way out of the conflict. Click here to explore the analysis and events referenced in this episode.

We've just published our Q3 Outlook reports for the global economy and markets. They tell a fairly grim near-term story of inflation, recession and weaker equities prices. But there's nuance within that narrative, including emerging markets outperformance and a much, much brighter outlook for stocks beyond 2023. Ariane Curtis and Tom Mathews speak to David Wilder about the key takeaways from their reports ahead of client briefings this coming week. Plus, Neil Shearing explains why the bond market has been freaking out this week, why inflation is taking so long to respond to its monetary medicine and introduces our major new research project coming this September. Click here to explore the events and analysis referenced in this episode. 

Accusations of ‘greedflation’ are flying thick and fast, fuelling public anger over rising prices, putting executives on the defensive and pressuring politicians to do something. But are companies really taking advantage of inflation’s return to maximise profits? Simon MacAdam, a Senior Economist on our Global Economics team, has just completed in-depth analysis into the ‘greedflation’ question and talks to David Wilder about his findings – including why the current debate is fundamentally flawed but also just how much corporate pricing behaviour has inflamed the inflation situation. Plus, what happens in Sintra doesn’t stay in Sintra. Group Chief Economist Neil Shearing explains why central bankers sounded so hawkish in their comments to the ECB forum at the Portuguese resort town. He also reviews the latest inflation data and addresses the Bank for International Settlement’s call for fiscal policy to join the fight to get price pressures under control. Click here to explore the analysis referenced in this episode.  

After that shock CPI report and the Bank of England’s aggressive response, Neil Shearing discusses whether the UK is a high inflation-slow growth outlier. Along with his survey of the latest advanced economy data, the Capital Economics Group Chief Economist also talks about what EM central banks have been doing right. And he explains why, despite signs of improvement, fundamental strains in US-China relations will continue to drive the fracturing of the global economy. Plus, in an exclusive clip from our online client briefing following the Bank of England’s June meeting, our UK, Housing and Financial Markets economists answer client questions about the impact of another ratcheting up of Bank Rate on everything from household finances to house prices to the gilt market.  Click here to read the analysis referenced in this episode.

In this special episode of the Capital Economics Weekly Briefing, our team of property economists explain how commercial and housing markets are faring in a world of rapid and large increases in interest rates. Taking in everything from the crisis in the US banking system to panic around UK inflation, the team discuss what’s been happening on both sides of the Atlantic and where they think markets are going. Chief Property Economist Andrew Burrell revisits our forecasts going to into 2023 to discuss whether markets are passed the worst;Andrew Wishart, the head of our UK Housing service, explains what the recent surge in UK mortgage rates means for transactions and prices;Kiran Raichura, our Deputy Chief Property Economist, and Senior Property Economist Matthew Pointon discuss the similarities and differences between the US and UK commercial markets, including the office outlook in both.Click here to read the analysis referenced in this episode.